Ⓒ JoongAng Ilbo / JoongAng Ilbo Japanese version2022.05.03 11:55
The economic situation that South Korea will face during the five years of the new administration is not easy. Due to the “law of 1% decline in 5 years” that has continued for 30 years, there is a possibility that the long-term growth rate, which indicates the growth potential of the economy, will finally reach the 0% level. The annual economic growth rate is determined by adding a short-term impact to the long-term growth rate. Due to the long-term growth rate, which has already lost its physical strength, it is easy to fall into the crisis of negative growth, where the annual growth rate will be negative even if a slight impact is applied in the future. Even at this moment alone, following the Korona-ka, the Ukrainian war, inflation, and the US interest rate hike are not a few internal and external shocks.
In order for the new administration to respond firmly to this, it is essential to introduce a groundbreaking growth policy to rebound the long-term growth rate, rather than the old-fashioned economic stimulus measures. Along with this, crisis prevention policies are required to prevent short-term impacts from developing into large-scale crises. In particular, the parts that may act as fuzes for the financial crisis when shocks are applied from inside and outside must be removed in advance. Of these, household debt requires particularly careful preemptive inspection and management.
◇ Financial crisis follows household debt
Household debt has already contributed to the financial crisis in various countries and has had a major impact on the real economy. The 2008 US financial crisis is typical. In the United States, housing mortgage loans increased rapidly before the financial crisis, and the household debt ratio to gross domestic product (GDP), which was 69.7% in early 2000, increased to almost 100% in early 2008. After the surge in household debt, the United States faced a major financial crisis following the Lehman shock in September 2008, resulting in a negative growth of 2.8% in 2009.
Therefore, the role of the government to accurately calculate the total amount of household debt and prevent it from becoming excessive is very important for crisis prevention. On the other hand, countries such as the United States, Ireland, and Spain, which were hit hard by the global financial crisis, drastically reduced their household debt ratio following the crisis. However, even following the crisis, household debt increased rapidly in South Korea, and household debt as a percentage of GDP in 2020 was ranked 6th in the world by the Bank for International Settlements (BIS) standards, rising 6 steps from 12th in 2008.
Even more worrisome is that South Korea’s total household debt is significantly undervalued. BIS calculates the total household debt of each country by aggregating the total amount of loans supplied to households by financial institutions, but this method is not a big problem in other countries. This is because most of the household debt in these countries comes from borrowing from financial institutions, that is, indirect financing through intermediary institutions.
◇ Housing deposit is a debt held by the landlord
However, in the case of South Korea, in addition to household debt through financial institutions, there is a large amount of household debt through the transmission and quasi-transmission of the housing leasing system peculiar to Korea. According to a paper written by the author with Dr. Shin Hyun-sung (Director of BIS Research Bureau) in 2011, the essence of Jeonse is household finance where the landlord rents a house and borrows money (margin deposit) from the renter.
The house rented by the renter in such Jeonse finance will serve as collateral for the loaned housing deposit. In addition, the risk of not receiving interest and the risk of not receiving monthly rent are completely eliminated by automatically offsetting the interest received by the renter and the monthly rent received by the landlord. As a result, the transmission is a very efficient direct finance that greatly reduces the risk of not receiving principal and interest than indirect financing through financial institutions. Semi-margin deposit, which pays 30-40% of the deposit as a deposit, is a direct finance between households that plays a similar role. After all, the deposit of Jeonse and quasi-Jeonse is the debt of the landlord.
[Column]South Korea’s real household debt is 2713 trillion won, 130% of GDP (2)
